Frequently Asked Questions
What you need to know about selling your business
Some businesses sell in as little as one week, and some even before they hit the public.
It can take anywhere from 1 week to 18 months for your business to sell, based on numerous factors. We do our best to address all obstacles and prepare for success before we hit the market to achieve the best possible outcome.
We work with the seller to create a confidential ‘blind profile’ for the business. The blind profile is a blurb highlighting various facts about the business. We use the blind profile in the email announcement to our buyer list and for advertising on business-for-sale sites. The blind profile is written to entice buyers and prompt them to sign a Non-Disclosure Agreement (NDA) before accessing further details about your business.
Our Engagement Agreement is exclusive with a term of 6 months. The agreement is written as an “evergreen” contract so that after the six months, either party can opt out with 30 days notice.
The average Engagement Fee is $2,500, though we do a sliding scale from $1,000 – $5,000 based on the complexity and size of the business. The Engagement Fee is fully deductible against any success fee owing to Chinook upon the successful sale of the business.
Presenting a business to market requires a tremendous effort. Buyers require a comprehensive understanding of a business before submitting an offer. As Intermediaries, we facilitate this understanding by developing an informative Confidential Information Memorandum (CIM), which are typically 30-50 pages in length or longer. While this engagement fee does not cover all of Chinook’s costs to prepare a business sale, it shows a commitment from our client that they are willing and ready to do the work required to achieve a successful sale.
For an example of a CIM, click here.
Chinook first works with you to determine exactly how you profit from running your business so that it is clear how much money is available to a new owner. We then consider the market sales data of similarly sized businesses from your industry. Using this market data, we calculate a justifiable asking price for your business. How do we know if an asking price is justifiable? It achieves the 3 criteria every business buyer seeks when buying a business:
- The business must provide the buyer a living wage
- The profits of the business must cover the payments of any debt used to purchase the business
- Finally, the business must provide a return on the money they invested into the business (after the buyer pays themselves a salary and covers their debt payments).
If the valuation you receive is not enough to help you do whatever is next in your life, you have three choices:
- Roll up your sleeves and get back at it to improve your business so that it is worth what you need. We offer exit-planning services to help with that.
- Change your future plans to accommodate the budget that the sale of your business will realistically afford you.
- Try someone else to see if they will take your business to market at the price you want. We might be wrong in our valuation. Not probable but we’re not infallible. While you’re on the market you can employ choice 1.
Inventory is almost always included in the asking price. Not including inventory can seed confusion for a potential buyer. An inventory business does not exist without its inventory. The buyer will need to account for the inventory in their buying decision. Therefore, it is best to present the investment amount fully to the market place so you don’t spend time with buyers who actually can’t afford your business or be tainted with a notion that you are doing a bit of a “bait and switch” sales routine.
Your employees won’t find out if you don’t tell them. Sometimes business owners feel they are treating their employees unfairly by not telling them about their desire to sell the business. The fact is they will be shocked, scared, disappointed or some combination thereof when they first hear. If you tell them before you start the process, they will have months to rue their fate and tell themselves stories about how awful the new owners will be and how they will probably get fired or must quit. None of those stories are true. Buyers are always very concerned with the employee’s willingness to stay on. Best practice is to tell your employees the day after your deal closes. Call a staff meeting, tell them what you’ve done, explain why you didn’t tell them until now and then introduce the new owners to them all in one fell swoop. The new owners should have updated employee contracts for each of them so they know they are going to be fine, and the employees can see that the new owners don’t have horns in their heads and they won’t have all of that time to make up crazy, unhelpful stories.
We will need the following information to get started (we find it is often easiest to send this list to your accountant in an introduction email):
- 3 Years (5 years preferred) accountant prepared financial statements including balance sheets.
- Year-to-date interim financials, either management prepared, or accountant prepared. Copies of the lease for premises, and any other leases or contracts for equipment, vehicles, etc.
- A list of furniture, fixtures, and equipment (“FFE”) and its estimated current market value.
- Average level of your business inventory and any seasonal fluctuations we should be aware of.
- A copy of your current fiscal year General Ledger (or digital file in Excel format).
Without accountant prepared financial statements the banks will not be willing to provide financing for your business sale. This will impair your ability to get a deal done. Buyers, like the banks, have more confidence in accountant prepared statements. We can work from your tax returns combined with your in-house Profit & Loss and Balance Sheet, but the previous statement about confidence still apply.
Essentially, it is the seller becoming a bank for the buyer. A portion of the total purchase price is a loan from the seller to the buyer. The buyer pays back that loan with interest from the proceeds of the business on terms agreed to by both parties. Vendor financing is looked on very favourably by bankers as it gives them confidence to make their loans and, sometimes, can make the difference between getting a deal done and not. Bankers like to see 30% of the deal vendor financed, however, we typically see 10-20% vendor financing in the marketplace. Note: this varies from deal-to-deal for multiple factors.
Most businesses we sell are on Vancouver Island or the Lower Mainland. In the last year we have sold businesses in: Greater Victoria, Cowichan Valley, Campbell River/Comox, Metro Vancouver, Burnaby, Vernon, and Kelowna.
In addition to BC, we have also successfully sold businesses in Alberta.
We have an internal buyer database of 3,500, almost 2,000 of which have signed non-disclosures with us. In addition to that, we use our internal professional networks and professional business-for-sale sites to advertise your business. We post the business for sale on BusinessesforSale.com, BizBuySell, Axial, VillageWellth, Paratus and more so we ensure the business gets plenty of exposure.
Potential buyers get drafted into and identified on the Engagement Agreement. If one of those persons or businesses ends up being the purchaser for the business, the Success Fee is reduced by 40%.